It’s unfortunate that so much of the health care debate is about whether insurance companies — or for that matter, the government — are good or bad. The cost problem, which in turn is the accessibility problem, is due to the third-party payer system, and that system exists whether one uses bureaucratic private insurance companies or bureaucratic government to pay routine bills that patients should be paying themselves.

To put it in perspective: We use car insurance only for major expenses, not routine care. If windshield wiper blades were covered by auto insurance, can you imagine what the cost would be?

“Ah,” some say — “but in government run systems, the cost of health care is less!” But that’s not really true: Government accounting, as everyone with any exposure to the practice is aware, tends to greatly understate actual costs. Moreover, in systems of monopoly or monopsony (government or otherwise), the pricing system is distorted, and therefore stated prices are unreliable. If a procedure costs $1000 in the U.S. and $750 + a long wait or a lot of pain in Canada (where health care is a government monopsony), Canadian statisticians probably will report only the $750 component of the cost.

But an even better answer is that a free-enterprise, predominantly first-party payer system is by far the least expensive of all! (I say predominantly, because (a) we should retain a government safety net for the poor and (b) third-party payers will always be needed for catastrophic events).

Routine medical care was eminently affordable for most people before the federal government fostered the third-party payer system. In 1964, for example, $5.00 was a common charge for an office visit to a family practitioner. According to the Federal Reserve Bank of Minneapolis CPI calculator, that’s less than $35.00 in current money. Compare that to today’s $95-$265 price range.

Of course, there have been inventions and technological changes since that time, but in industries not dominated by third-party payers, such changes usually drive costs DOWN, not up. Third-party payer systems reverse the usual rule by creating disincentives to control costs and incentives to focus on developing expensive, lavish technology, for which one can charge a great deal (an MRI), as opposed to cheaper technology (such as a pill). It also drives up price because bureaucracies cost money.

The fact that health care, like education, is mostly third-party financed, explains why these are two rare exceptions to the rule that better technology drives costs down.

My guess is that the reason much of the health care debate centers on insurance companies and government is that insurance companies and government unions are big players in the debate, and they like the third-party payer system because they profit from it. But if we were approach health care reform rationally, we would adopt policies targeted toward greatly reducing both government and insurance company involvement in the health care system.